Inequality creates illness in individuals and societies

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Yesterday the world of economics journalism was suddenly full of headlines and tweets suggesting that a new survey of leading economists by the University of Chicago’s Institute on Global Management found widespread disagreement with Thomas Piketty’s analysis of the growth of inequality in America. (Chicago IGM) In other words, very few economists believe that Thomas Piketty’s equation r > g explains the rise in US inequality over the past 40 years. The punchline here, however, is that Piketty’s book does not say that r > g explains the rise in US inequality over the past 40 years. What he says is that over the past 40 years or so there’s been an enormous explosion in CEO pay and also compensation for superstars in finance. Slate’s Jordan Weismann e-mailed Piketty just to be sure: I think the book makes pretty clear that the powerful force behind rising income and wealth inequality in the US since the 1970s is the rise of the inequality of labor earnings, itself due to a mixture of rising inequality in access to skills and higher education, and of exploding top managerial compensation (itself probably stimulated by large cuts in top tax rates), So this indeed has little to do with r>g This is a fairly widespread confusion about Piketty’s book, which has two origins. One is that very few people actually read big important books. The other is that much of Piketty’s findings about the past had been previously published in a series of journal articles. This pioneering empirical work made him famous, and made his book widely anticipated in wonky circles. When the book came out, Piketty junkies were disproportionately interested in the new material, much of which focused on his model of how the future of wealth will be shaped by r > g. So you had a lot of people talking about Piketty’s famous empirical work, and then you had a lot of people talking about r > g, and then a lot of people who hadn’t read the book just mixing them up.